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2017 (2) TMI 1117 - AT - Income TaxDepreciation on Goodwill//non compete fees - Held that - As it is specified in agreement that unless permitted by the assessee i.e. SMPL, WAVE and Mr. V. F. John Yesudhas will not do anything which may amount to competition with the present assessee. Hence in the present case also, the assessee i.e. the acquirer gets the right to enforce the performance of the terms of agreement under which the seller WAVE and Mr. V. F. John Yesudhas including their associates, partners and relatives shall not compete with the assessee i.e. the acquirer. Hence, in our considered opinion, the facts of the present case are similar to the facts in the case of the judgment in the case of CIT vs. M/s Ingersoll Rand International Ind. Ltd. (2014 (6) TMI 934 - KARNATAKA HIGH COURT ) and in the present case also, this right acquired by the assessee can be transferred to any other person in the sense that the assessee acquirer gets the right to enforce the performance of the terms of agreement under which the seller is restrained from competing. Therefore, respectfully following this judgment, we hold that even if the right acquired by the assessee is held to be non compete right then also, it is eligible for depreciation u/s 32 (1) (iii). - Decided in favour of assessee
Issues Involved:
1. Disallowance of depreciation on Goodwill. 2. Disallowance of depreciation on interiors. 3. Disallowance of depreciation on computer software (specific to A.Y. 2010-11). Detailed Analysis: 1. Disallowance of Depreciation on Goodwill: The primary issue revolves around whether the payment of ?1050.42 Lacs should be treated as Goodwill or Non-Compete Fee and if depreciation is allowable. The assessee argued that the payment was for acquiring various assets and rights, including the trade mark "WAVETEL" and other intellectual property rights, and thus should be considered as Goodwill. Even if considered as Non-Compete Fee, the assessee claimed depreciation should be allowed at the same rate applicable to intangible assets, citing the Karnataka High Court's judgment in CIT vs. M/s Ingersoll Rand International Ind. Ltd., which held that non-compete fees confer a commercial or business right eligible for depreciation under Section 32(1)(iii). The Revenue countered, supporting the orders of the authorities below, and argued that the facts of the present case differ from the Ingersoll Rand case, as the rights acquired by the assessee cannot be transferred to another person. They cited the Delhi High Court's judgment in Sharp Business System vs. CIT, which held that non-compete fees are not eligible for depreciation if the rights cannot be transferred. Upon consideration, the Tribunal found that the facts of the present case align with the Ingersoll Rand case, where the right acquired by the assessee can be enforced and transferred in the sense of enforcing the terms of the agreement. Thus, the Tribunal held that the right acquired, whether considered as Goodwill or a non-compete right, is eligible for depreciation under Section 32(1)(iii). The Tribunal followed the jurisdictional High Court's judgment and allowed the depreciation claim for both assessment years. 2. Disallowance of Depreciation on Interiors: The second issue pertains to the disallowance of depreciation on interiors amounting to ?890,704 for A.Y. 2010-11 and ?565,953 for A.Y. 2011-12. The Tribunal noted that the CIT (A) had not decided on this issue. Therefore, the matter was restored to the file of the CIT (A) for a decision on the allowability of depreciation on interiors. 3. Disallowance of Depreciation on Computer Software (Specific to A.Y. 2010-11): The third issue, specific to A.Y. 2010-11, concerns the disallowance of depreciation on computer software amounting to ?404,253. Similar to the second issue, the Tribunal found that the CIT (A) had not addressed this matter. Consequently, the issue was also restored to the file of the CIT (A) for a decision. Conclusion: The appeal was partly allowed. The Tribunal allowed the depreciation claim on Goodwill/Non-Compete Fee, following the jurisdictional High Court's judgment. The issues concerning depreciation on interiors and computer software were remanded to the CIT (A) for further consideration and decision. The order was pronounced in the open court.
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